Queensland’s economic outlook has deteriorated this financial year, with the budget deficit blowing out by $400 million, mostly because of lower-than-expected coal royalties.

Treasurer Tim Nicholls said the operating deficit was expected to total $6.69 billion in 2012-13 – the worst in the state’s history – with economic and employment growth downgraded as economic conditions worsen.

But Mr Nicholls said the Liberal National Party would still deliver a budget surplus in 2014-15.

“If we don’t try to get a surplus the ratings agencies will downgrade us further," Mr Nicholls told reporters in Brisbane on Thursday.

“We believe we have taken the tough decisions, we haven’t shirked away from them, and we believe a fiscal surplus in 2014-15 is achievable."

But the Newman government will struggle to achieve such a rapid turnaround without further asset sales – a key recommendation of the second Costello commission of audit report, which has not been publicly released.

The Treasurer would not rule out future asset sales but reiterated that no decision would be made on privatisation without the approval of voters at the next state election in 2015.

With the tourism and property sectors still struggling to recover from the economic downturn, the mid-year budget update showed the state’s economy was expected to slow down from the 4 per cent forecast at the budget in September to 3.75 per cent for the remainder of the financial year.

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Employment growth is expected to slow to 0.25 per cent, down from 0.75 per cent, while the unemployment rate is expected to increase from 6 per cent to 6.25 per cent.

The biggest factor in the state’s budgetary position is revised coal royalties. Lower-than-expected prices and exports have contributed to an estimated $433 million downgrade to royalties this financial year and $1.3 billion over the forward estimates.

“Unfortunately, the outlook for our major trading partners is now significantly weaker than anticipated at the time the budget forecasts were prepared," the budget update said.

“As a consequence, the near-term outlook for the coal market is weaker. Volumes and prices for coking coal have therefore been revised down further."

A cut in federal funding of $756 million has also added to the worse-than-expected budget bottom line.

Mr Nicholls defended the Newman government’s decision to increase coal royalties in the September budget, saying the higher rates would only kick in once the coal price recovered.

Acting Prime Minister and Treasurer
Wayne Swan
rejected Mr Nicholls claims the federal government was partly responsible for a deterioration in the state’s budgetary position.

He said budget papers showed an extra $4.2 billion in Commonwealth funding was being provided to Queensland over the next four years.

“It’s about time Mr Nicholls stopped pointing the finger at everyone else and started taking responsibility for his own budget," he said.

“While the Commonwealth is providing extra funding to Queensland, Mr Nicholls and Premier Newman are taking the sledgehammer to Queensland services, slashing thousands of jobs in the health sector, closing down nursing homes and cutting funding to education.

“Queenslanders are sick of Mr Nicholls and Premier Newman blaming everyone else for their cruel cuts."

The Newman government prefers to use the state’s fiscal balance, which includes borrowing, as the main indicator of the state’s finances.

The budget papers showed there would be a fiscal deficit of $11.2 billion this financial year, $500 million worse than predicted in the September budget.

The mid-year update showed the budget would return to a fiscal surplus of $534 million in 2014-15.

The state’s total debt is set to peak at $82.5 billion in 2015-16, while the debt-to-revenue ratio, used by credit ratings agencies, will peak at 149 per cent this year and decline to 137 per cent in 2015-16.

Queensland lost its AAA credit rating in 2009 and is unlikely to regain the top rating for the next few years.